Introduction: The key to a distributor's sustainable business is achieving distribution coverage of retail stores.
Hello friends. I am Yuan Lai from New Distribution. Recently, while communicating with distributor friends from various regions, I found that many are either preparing to start or are already on the path to building local B2B platforms. Many friends, after reading our case reports and study tours on Jiayun Yunshi, Kuailai Zhanggui, Rongcheng Yigou, and Luoyang Hecai, have come to realize that the local B2B platform business can be a viable path for continuous growth and strengthening. I have mentioned this example on many occasions: in a third- or fourth-tier city, take a typical mom-and-pop store with an average daily turnover of 3,000 yuan. With 3,000 yuan daily turnover, there is about 500 yuan gross profit and 2,500 yuan cost of goods. Among that, 1,500 yuan is for cigarettes, alcohol, and beverages, and 1,000 yuan is for groceries and general merchandise. Of the 1,000 yuan groceries, 750 yuan is mainly food and condiments. Therefore, it can be roughly calculated: In a third- or fourth-tier city with 3,500 mom-and-pop stores, the market capacity is: 750 * 365 * 3500 = 9.58 billion yuan (for the food and condiment category). That is to say, ideally, if a distributor covers 3,500 local mom-and-pop stores and provides them with one-stop FMCG supplies such as food, condiments, and daily chemicals, with a 30% market share, they can achieve a business of 300 million yuan. Moreover, this distribution business has no credit periods, no bad debts, and excellent cash flow. This is why many distributors are eager to try. The ideal is丰满, but reality is骨感. Although the business model looks good, it is not easy to implement. Based on the failure cases and the "detours" behind successful cases I have seen, I provide 10 guidelines to avoid pitfalls for friends who are about to start or are already doing local B2B platform business.
Platform distribution business and traditional agency business Although both involve buying and selling goods, the underlying logic is vastly different.
Doing trade agency business is centered on the needs of the agency brand. "I sell whatever the brand sells." You must not only complete the manufacturer's sales targets but also fulfill the new product promotion targets given by the manufacturer. What to sell, how to sell, and to whom to sell are not your concern; basically, the manufacturer has already designed it for you. To put it bluntly, the upstream manufacturer is your customer, and the downstream stores are just the carriers of the business. In contrast, doing platform distribution business is centered on the product needs of the stores. "I sell whatever the small store wants." What products to sell is based on the needs of the small stores. Compared to trade agency business, the downstream small stores are your customers, and the upstream brands are just the goods you handle. This is the logical difference between the two. Therefore, when a distributor becomes a B2B platform operator, they must first establish the correct mindset in their business philosophy.
Try not to partner with several trade peers to do it together!
Because it involves providing one-stop FMCG products to small stores, it covers multiple categories such as beverages, snacks, condiments, and daily chemicals, with two to three thousand SKUs. Some large distributors in a single category like snacks, condiments, or daily chemicals might think, "I don't understand condiments or daily chemicals, can I invite local peers to join forces?" It seems that product organization is solved, and risks can be shared to some extent. However, once you actually cooperate, various problems will arise. Of course, this is not a problem with the B2B platform business model itself. Rather, when two or more distributor bosses partner to run a business, historical practice shows that the success rate is low. In the unified warehousing and distribution business that emerged in 2018, when three to five distributors merged their warehouses, the results were all inconclusive.
It doesn't matter which system you start with; you will always change it!
Many distributors, when preparing for a B2B platform, first face the issue of which system software to use. They ask me if I can recommend a "perfect" software system. There is no perfect software system in the market; just as no one is perfect. My consistent view is: Get the business running first; any system will do. The software system follows the business. As the business grows, the system tools should also be updated. Don't expect the system to be perfect from the start. Find a relatively reliable one, get it running, and change as you go. Software systems can never be 100% perfect.
Do not mix existing trade business with platform business!
Do not run a regional B2B platform within the existing trade company system. The organization and capabilities of the existing trade company are not sufficient to support the platform business. It's not that the internal organization is inadequate, but that different businesses require different capability modules. The existing trade distribution business is centered on upstream brands or categories, while the local B2B platform is centered on store product needs. Take backend procurement as an example: in trade distribution, procurement is more of an administrative role—placing orders, calculating expenses, and doing verification. In contrast, B2B platform procurement is a core business role: how to source cheap best-selling products, which products to source, how to update and eliminate products in condiments, daily chemicals, snacks, etc., and how to find long-term stable supplier partners. The organizational capability requirements are completely different.
Doing a platform means competing with peers; don't be too high-profile in the early stage!
When doing a local B2B platform, you need to cover snacks, condiments, beverages, and multiple categories to distribute to mom-and-pop stores. Local peers will be wary of you and may not supply you. Even if they do, they won't give you favorable prices. Therefore, in the early stage of B2B, don't be too high-profile; disguise yourself appropriately. Wait until you have a monthly sales volume of 4-5 million yuan, then you have the qualification to sit at the negotiation table. Of course, even if you stay low-key, you will eventually be besieged and resisted by local distributors and wholesalers.
Don't expect to make money in the first two years; have the awareness of strategic losses!
Traditional distributors sell goods to stores, and every truck and every piece must make a profit. Not making money is not acceptable; this is the inevitable pursuit of a sustainable business based on stable operations. But this does not work for a local B2B platform. In the first 2-3 years, it is unlikely to be profitable. With stable development, after passing the break-even point, after 3 years, once you reach a certain scale, it becomes very profitable. Previously, many distributors asked me if they wanted to do B2B. My first question was: How long do you want to do this B2B business? 1 year? 2 years? 5 years? 10 years? The local B2B platform business is not like representing a brand and achieving 10-20 million; it's not a project. To put it bluntly, it is no less than a second entrepreneurial venture for a distributor. At this time, your age, mental energy, financial resources, and expectations for the time cycle are very important.
Software tools are infrastructure, but the core of the business is still products and stores!
The local B2B platform is a brand-new business model. Downstream, it covers three to five thousand small and medium stores; upstream, it organizes at least two to three thousand SKUs. With multiple SKUs and multiple stores, it is necessary to operate through digital software tools. Because the software has various coupon functions: full reduction, full gift, full send, limited-time purchase, limited-time discount, various holiday promotions, etc. Distributor bosses usually think: with so many customers and so many products, the "operations" of the platform business must be very important. But in fact, operations are not as important as imagined. For a store, "certainty" of product demand and stable and continuous product supply are the most important. Therefore, compared to "operations," the most important are the front-end "sales" and the back-end "procurement and sales." Which products to sell, which products can move, and which products can make money are the core of "procurement and sales." How to get more stores to purchase, purchase more, and purchase continuously is the core of "sales."
The most suitable categories for initial entry: Beverages and snacks, but each has pros and cons!
When doing a local B2B platform, if you enter with the beverage category, whether you are doing Nongfu, C'estbon, Red Bull, Coca-Cola, or Master Kong, your past traditional trade business already involved small store coverage, which is an advantage. But under the advantage, there are definitely drawbacks. If you do first-tier beverage brands, the manufacturer has high requirements for you. If you also do B2B platform business and enter with water and beverage products, it will inevitably affect your existing business, with risks of divided attention, low prices, cross-region supply, etc. The manufacturer's manager will put some pressure on you. If you enter with snacks, first-tier snack manufacturers will actually strongly support you, because previously, distributors of mainstream snack categories covered small and medium stores mainly through regional wholesalers. Now, if you directly cover small and medium stores, snack manufacturers will support you with both hands, and may even provide funding. Similarly, the disadvantage is that snack distributors probably have not done deep distribution to small stores before, so they need to rebuild a team to visit and develop small and medium stores, which takes time to figure out.
The SKUs of your own trade business differ greatly from the product needs of the small stores covered by the platform!
Some snack distributors are TOP1 in the local snack field, representing fifty or sixty brands with one to two thousand SKUs. When doing a local B2B platform, they think they don't need to source snacks externally. But in fact, the one to two thousand SKUs from trade agency are very different from the one to two thousand SKUs needed by small stores. The SKUs from agency are partly those the manufacturer wants to promote or cultivate, and partly those suitable for supermarket and hypermarket channels, with large specifications and packaging that do not fit the selling scenarios of small stores. If the trade self-operated has 2,000 SKUs, the match rate is only 25%, i.e., 500 SKUs.
The path cannot be exactly the same, but scaled distribution is definitely the right direction!
The local retail environment, competitive landscape, internal organizational capabilities, and category resources are all different. Therefore, the path to becoming a local B2B platform operator cannot be exactly the same. Some distributors enter with beverages, some with snacks, and some with daily chemicals. Although the paths are different, one thing is certain: the direction of scaled coverage and distribution is definitely correct. The foundation for a distributor's future survival is not the brand, but the stores. Doing a good job of distribution coverage of stores is the key to a distributor's sustainable business.
Final Thoughts
Many distributors are eager to do local B2B platforms, but their considerations always start from objective market capacity factors such as local population, economy, city size, and whether there are other platforms. But in fact, when a distributor wants to do a local B2B platform, they should think about three dimensions:
- Local peer competition
- Local retail landscape
- Their own operational strength
Local peer competition: whether there are peers with absolute influence in the three major categories of snacks, condiments, and daily chemicals, who may become potential competitors or "stumbling blocks" on the road to a local B2B platform. The degree of chainization of the local retail format, especially in fourth- and fifth-tier cities, also determines the number and capacity of small and medium stores that distributors can independently cover. Finally, their own operational strength: for the local B2B platform business, I generally suggest that if the traditional trade business has not reached 50-60 million yuan or more, or if the distributor is not among the top 2 in a specific sub-category (condiments, snacks, daily chemicals, beverages), they should not consider this business. Doing a local B2B platform business is a good business, but it is also a business with high barriers; it is not something you can succeed in just because you want to!
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